Actuaries and Discrimination – Report of the Anti-Discrimination Working Group
Wednesday 26 August - 2:00pm - 3:00pm
Chris Dolman, Niki Appleton, Liz Baker, Michael Storozhev
Discrimination has been a newsworthy topic in recent years, and at times insurance has been in the spotlight. Following the 2019 report of the Victorian Equal Opportunity and Human Rights Commission into travel insurance (“Fair Minded Cover”), the Actuaries Institute formed the ADWG, to consider guidance or educational material for actuaries around this topic.
In this session, members of the working group will give an overview of the topic and associated material now available for members. This will include:
- A summary of the various state and federal discrimination acts
- An outline of the insurance specific provisions within that legislation
- High level guidance for actuaries, particularly for those in product development, underwriting and pricing, in complying with this legislation and the insurance provisions
- Considerations for actuaries involved in the development of broader decision-making algorithms, where discrimination may occur
- Links to material produced by the working group, for member consumption
This session is intended to give actuaries a good starting point in how to consider discrimination within their work, and to publicise the material which the working group will make available prior to the Summit.
Alternative Investing in a Low Rate World, ILS, Private Equity & VC
Monday 24 August -10:00am - 11:00am
The low-rate environment is driving investment managers to look further for yield. Some look for riskier equities, others push credit spreads through their debt portfolios and some others look to alternatives. This presentation investigates ways to get exposed to alternatives without being left in the dark.
Alternative asset classes often have nice risk-return profiles and diversification properties that make them great additions to a well balanced portfolio. However, investors can be taking a leap of faith as to what exposures they are buying, in how they should select an investment and how it should be monitored.
Insurance linked securities (ILS) have boomed in recent years as investors witnessed their insensitivity to general equity market turmoil. Inside these securities are complex risks. We discuss how an investor can approach this market with confidence that they understand what they are buying and know what sort of compensation they need for the risk they are taking on.
We finish by looking at how the role of private capital is changing the investment landscape. The global boom in private capital continues to accelerate and managers of long term risk are increasingly looking for direct, private investment opportunities; where the benefits of control outweigh the benefits of liquidity. We look at where this trend might be heading and what that means for managing investment portfolios in the 2020s.
Are Actuaries Still Relevant?
Thursday 27 August - 12:00pm - 1:00pm
Jules Gribble, Lesley Traverso and Caroline Stevenson
Professional relevance, or what difference you as an individual can make in your work is a hugely important challenge that we all grapple with. How confident are you of staying relevant given the immense changes in community expectations, regulatory environments and our evolving digital world? How supported do you feel in developing and maintaining your skills as your career develops? Does what you do lead to better decisions? Different actions? Are you actually the decision maker? Do you have the skills to do this effectively?
Council recently established a Continuing Professional Development (CPD) Committee to review professional development activities and their delivery to members. CPD is an expression of the professional curiosity and purpose inherent in our roles with a desire to continue to provide high quality professional services. It should be embraced and enjoyed as an integral part of our careers. This committee is reviewing how CPD can become more relevant to members and better assist them manage and progress their own learning.
In February/March 2020, the committee authored a survey distributed around the membership to elicit views and perspectives to inform a revision of objectives and structure of CPD in Australia.
As part of this process the committee would like to hold an interactive consultative and debate session at 20/20 Actuaries Summit as an important part of seeking member input into the redesign.
The objective of this concurrent session is to:
- Report on the feedback from the survey
- Highlight key views
- Outline suggested amendments to the current CPD program to better meet members’ objectives
- Provide a platform for dialogue and discussion
Two or three members of the committee will be in attendance to present, guide and lead the discussion. Those planning to attend the session are encouraged to read the background material that will be provided.
Calculating Our Way to a Better Future
Thursday 20 August - 10:00am - 11:00am
Richard Dunn, Andrew Boal and Michael Rice
Research suggests that uncertainty about the future is one of the key fears that Australians have when they contemplate their retirement. In addressing this issue, superannuation funds provide technological solutions (called calculators or online tools) to help guide members through their uncertain financial future. However, the current range of tools used to help support decision-making assume a certain world through deterministic assumptions.
While tools of these kind provide good long-term guidance, they often fail to capture the true uncertainty that retirees face and as a result undermine confidence in their results and provide answers which do not consider the full range of risks that Australians face. The tools often lack sufficient data about the member to provide a good gauge to the future.
In this session, we will demonstrate the difference between two custom built superannuation calculators. One that is representative of the current tools used by the industry with deterministic investment returns and one which uses stochastic returns to demonstrate and quantify uncertainty. This will allow attendees to compare and contrast the impact that a new generation of calculator, one which uses stochastic rates, might have on the quality of guidance provided to members. Through this, we anticipate that superannuation funds will be provided the business case they require to make an investment in this space and consequently provide better solutions to help their members.
This presentation will be supported by an information paper and an accompanying stochastic calculator which will be used in a live demonstration to demonstrate the value of these models now and into the future.
Children of the Data Revolution: Investment Approach Modelling to Improve Outcomes for Vulnerable Families in NSW
Wednesday 12 August - 2:00pm - 3:00pm
Alan Greenfield, Peter Mulquiney
Following a 2015 review into out-of-home care in NSW, the NSW Government established the Stronger Communities Investment Unit. The Unit has been tasked with leading cross-government strategy to improve outcomes for vulnerable children and families across NSW. Its work is underpinned by an investment approach, which uses a comprehensive human services data set and investment modelling to determine population groups most in need, in order to guide investment and social policy decision-making.
The investment modelling projects lifetime pathways for all NSW residents under age 25 as at 30 June 2017 (almost 3 million people) and includes key outcomes and interactions with government agencies including child protection, health (hospital, Medicare and pharmaceutical), social housing, justice and welfare. The model also provides a family view, where parents’ outcomes interact with their children’s pathways recognising that changes to the parents’ situations can profoundly affect the pathways of their children.
This session will present the striking key results from the first round of investment modelling, published in the Forecasting Future Outcomes report, a NSW government paper released in July 2019. It will also present subsequent analysis performed on a regional level which is being used to assist with policy development, planning and commissioning. This regional work looked at population groups which the Stronger Communities Investment Unit will initially focus on for system and service responses – Vulnerable young children aged 0 to 5, and Children and young people affected by mental illness.
Developments in Multi-factor Continuous Time Mortality Modelling
Wednesday 12 August - 4:30pm - 5:30pm
This presentation draws on the research carried out at the ARC Centre of Excellence in Population Ageing Research (CEPAR) on mortality modelling over the last decade. The emphasis is on methods of most interest to practitioners in life insurance and pensions. The presentation will introduce continuous-time mortality models highlighting the analytical tractability of the models arising from closed form for cohort survival curves for the aﬃne class of models, consistency between the mortality dynamics and functional form of the survival curve, and stability of parameter estimates. The models include multi-factor models reflecting level, slope and curvature changes in the mortality curve, and can capture diﬀering trends, volatility and correlations by age. A comparison of fits and prediction using historical US mortality data will be provided with an application quantifying the price of mortality risk using Blackrock CORI indices.
Disability Income Insurance, Learning from General Insurance and International Markets
Wednesday 5 August - 3:15pm - 4:15pm
Huda Ansari, Daniel Longden, Han Gan
The disability income insurance industry in Australia has been adverse claims experience over the last few years. More recently, there has been an increased focus from the regulator requiring insurers to consider implementing changes to ensure the stability and sustainability of Individual DII products in the future. There is a general sentiment in the market that the design of the disability income insurance product at present does not adequately support the customers' journey back into gainful work in Australia’s modern economy. As disability income insurance products are offered in a number of markets around the globe, we conducted research into how the Australian products differs from the disability income insurance products offered in three markets overseas, namely UK, US, and South Africa.
We have now also considered what learnings that can be taken from similar products offered in Australia by General Insurers. Workers compensation and compulsory third party products both offer income replacement benefits. What can be learned from the management of these products that can be applied to Australian DII?
In this presentation we will share with you:
- A brief history of the evolution of the disability income insurance
- Structure and key types of the disability income insurance products offered
- Key differences in the definitions and types of cover offered
- Differences in the range of ancillary features on offer
- Levers available to insurers to control claims costs
- A comparison of the management of Australian DII and its General Insurance counterparts
We will conclude by discussing key challenges that face the Australian disability income insurance market and what changes we may expect in the products going forward to ensure the sustainability of the product.
Thursday 13 August - 2:00pm - 3:00pm
This presentation will look at the non-financial side of ageing and retirement. How do we ensure a happy retirement? How can we predict people who will age happily? It will cover some surprising findings and dispel some myths. It will draw on various pieces of research including a Harvard longitudinal study, the Blue Zones research as well as books by George Vaillant and Ellen Langer. It will traverse topics spanning mental health, diet and exercise, alcoholism, the impact of community and purpose.
As actuaries we often focus on the financial aspects. As this presentation will show, money is only a small contributor to happiness in retirement. The presentation seeks to broaden our understanding of what our customers are experiencing. It is relevant to actuaries working in superannuation, insurance, investment and technology.
How Does Your Economic Scenario Generator Stack Up in the Current Environment?
Tuesday 25 August - 12:00pm - 2:00pm
Jon Tindall, Sen Nagarajan
This paper looks at a range of practical issues in building and calibrating Economic Scenario Generators that are fit for purpose. Every business problem has its own particular requirements from a scenario testing framework and it can be a challenge maintaining a framework that remains relevant and that can be easily adapted for specific needs.
What impact does a low rate world have on the design and implementation of an ESG? We look at how the current investment environment impacts on the requirements of an ESG and what are some of the consequences for the modelling of short and long term economic scenarios across multiple asset classes and multiple economies.
We look at the ways in which an ESG should be imbedded into the decision making process, whether that’s ALM, designing a hedging program or understanding the consequences of strategic and tactical asset allocation choices. An ESG that is not able to capture the complicated real-world dynamics of economic variables, and distill them into sensible scenarios, will struggle to gain influence in Board room.
IFRS 17 Implementation Challenges and Lessons – General and Health Insurance
Monday 10 August - 2:00pm - 3:00pm
Victoria Tidmas, Antony Claughton and Francis Beens
This session will discuss the challenges and lessons learned from IFRS 17 implementations for the Australian General Insurance and Private Health Insurance market. We encourage active participation from the floor. The discussion will include:
- Contract boundary –allowance for new business and cohorts.
- Capital / APRA considerations.
- Ways of reducing IFRS 17 complexity.
Lifetime Income Streams in a DC Superannuation System - A Global Pursuit
Wednesday 19 August - 3:15pm - 4:15pm
The topic is intended to appeal to life insurance and superannuation practitioners who are wrestling with how Australia’s DC superannuation system might deliver “income for life” to retirees.
The paper/presentation will comprise three main elements:
a) Outline a range of divergent views/conclusions from researchers and practitioners globally to illustrate some of the challenges in designing effective consumer solutions for lifetime income streams in a defined‐contribution system – purpose will be to use examples to illustrate the breadth of thinking across various key pension markets and to reference related papers to serve as a broader, non‐exhaustive reading list for those interested in reading further.
b) Showcase a selection of interesting lifetime income stream products from key pension markets ‐ some existing on‐sale products and some in concept stage.
c) Provide a reinsurer’s perspective on how the global reinsurance market’s appetite for longevity risk could impact Australian product design/pricing? Topics to cover will include:
- The evolution of the current reinsurance market for longevity risk
- Reinsurance capacity for longevity risk and its potential implications for Australia
- Current risk appetite challenges posed by potential Australian product designs
d) Reinsurance vs capital market vs “pooled self‐insurance” solutions – depending on the resultant depth and breadth of content covered in (a) – (c) above, the paper might also look to include a “taster” on this topic as a thought‐prompter for readers/audience. It is not intended that this topic would be a dominant feature of the paper/presentation.
Maturity Transformation is an Oxymoron: Ways to Match Pensions and Long-term Assets
Monday 17 August - 4:30pm - 5:30pm
Anthony Asher, Kevin Fergusson
Long-term cash flows, generated mainly by infrastructure and buildings, are an adequate source for pension payments to an ageing population. The interposition of short-term finance, with putative liquidity and performance guarantees, is a source of instability and unnecessary cost to providers and users of finance. For the retirement schemes that provide finance, sponsors and pensioners are currently exposed to significant investment risks because assets need to be sold at unpredictable prices to fund consumption. Their volatile investments are also costly to manage. Users of finance face risks in that their repayment obligations are not matched to their cash flows, and they face ongoing costs in managing the mismatch. In the middle, banks attempt to transform short-term deposits into long-term loans but are inevitably vulnerable to increased withdrawals.
Appropriately structured indexed annuity bonds – perhaps using alternative inflation and longevity linkages – would reduce overall risk for both investors and borrowers. Hypothecating cash flows to investors would also mean that the managers of organizations in both public and private sectors would lose access to tempting free cash flows and give investors more input into the funding of significant new projects. The institutional changes necessary for the extensive use of these instruments presents a challenge and opportunity to those in the finance sector and to researchers.
Many of the ideas in the paper are not new to actuaries, and they will readily grasp the value of those that are. The idea of duration matching in many ways represents a paradigm that is foreign to academics and practitioners with a finance and banking focus. It is suggested that the actuarial paradigm has much to offer but that it will require a significant effort to make space within the dominant paradigm.
Mind the Gap –The new Actuaries Institute Intergenerational Equity Index
Tuesday 18 August - 12:00pm - 1:00pm
Hugh Miller, Dr Ramona Meyricke
Most Australians want fair outcomes across generations – intergenerational equity. This includes older Australians being able to retire with dignity, middle-aged Australians rewarded appropriately for work, and younger Australians having opportunities in education and employment. However, differences in life stages mean that assessing intergenerational equity is difficult. The Actuaries Institute Intergenerational Equity Index (IEI) is designed to do this by tracking, over the past two decades, 24 indicators across six broad domains that relate to wealth and wellbeing (Economic, Housing, Health, Social, Education and Environment). The IEI shows that since 2012, there has been a marked widening of generation gaps.
There has been significant improvement in wealth and wellbeing for 65-74 year olds, which over the same period there was a pronounced drop in in wealth and wellbeing for 25-34 year olds and 45-54 year olds.
The session will introduce the Actuaries Institute IEI, highlight the main drivers of the result and cover the main policy options available to address the widening gap.
Non-Financial Risks in General Insurance – the AA’s Role
Tuesday 18 August - 2:00pm - 3:00pm
Gae Robinson, Hadyn Bernau
After the Royal Commission and other events, APRA has challenged actuaries to broaden their thinking about risk into non-financial areas like culture, governance, remuneration and consumer outcomes. This takes us outside our comfort zone – and it’s hard to know where we can add value.
This presentation discusses the management of non-financial risks (NFR) in general insurance from the Appointed Actuary’s perspective, answering questions like: What is the range of NFR? How can I approach them? Can I bring useful analysis to the table? How do I make a meaningful contribution when managing risks is the CRO’s role?
We propose a framework for thinking about NFR in general insurance, and suggest some ways the
AA can add value. Both internal and external AAs can make meaningful contributions to the management of NFR.
Performance management in the new IFRS 17 reality
Thursday 13 August - 12:00pm - 1:00pm
Matthew Buckle, Brendan Counsell, Shweta Krishna, Alexander Aeberli
The International Accounting Standard Board (IASB) is expected to issue an amended version of the new Insurance Contracts Standard, IFRS 17, in mid-2020. The Standard is expected to be effective for reporting periods starting on or after 1 January 2022 and attempts to standardise the measurement and reporting of Insurance contracts, resulting in more meaningful and comparable sets of financial statements. This Standard will represent a significant change to current Australian Insurance accounting and hence will significantly impact key performance indicators (KPIs) that are used by insurers today, both for internal performance management, as well as to communicate the reasons for historic performance, volatility, and future trajectory to investors. The new IFRS 17 world gives insurers an opportunity to reassess the key drivers of business and how best to monitor them. This presentation considers the impact of IFRS 17 on current metrics, possible new metrics, as well as how the Australian insurance industry and investors wish to provide and utilise information within an IFRS 17 context.
Supporting Mental Wellbeing with Analytics and Behaviour Change
Friday 14 August - 2:00pm - 3:00pm
Adam Reid, Danny Shuttleworth, Justin Toh, Linda Kemp. Nghiep Luu
AIA and Vitality have has partnered with Quantium, a globally recognised leader in the development of data-driven insights, to create an algorithm that calculates the risk of developing depression, based on our customers’ circumstances and choices. This could be used to:
- Understand what changes in behaviour or circumstances would make the most difference to depression risk, and therefore help prioritise investment and policy into improving mental health
- Incentivise behaviour that supports mental wellbeing.
This work has involved undertaking the world’s largest and richest study of the link between depression, demographics, health, lifestyle and circumstance through:
- Over 1000 features created and investigated spanning activity, sleep, health status and wellbeing indicators
- 500 million health claim lines over 10 years
- 1 billion biometric readings collected through AIA Vitality, Discovery
The algorithm developed has identified that lifestyle choices represent around a quarter of the depression impact, which can be incentivised for improvement. This can be used to develop programs through AIA Vitality to better engage members and improve their mental wellbeing.
Extrapolating these findings, we estimate that if the Australian population who have less than average lifestyles were able to shift to average behaviours for exercise, sleep and diet were able to live their healthiest lives (potentially incentivised by programs such as AIA Vitality), the national depression incidence rate could reduce from 6% to 4.7%, which is 300,000 fewer depression incidences, leading to 4.7 million working days recovered and saving the Australian economy around $3 billion per annum.
AIA Australia intends to use the algorithm to enhance the AIA Vitality program, to further help customers know their mental health and to incentivise improvements in behaviour around sleep, exercise and diet to support improved mental health outcomes.
The Hidden Risks in Over-Simplifying Retirement Income Strategies
Friday 7 August - 2:00pm - 3:00pm
There is an understandable desire from both clients and practitioners to keep things simple when it comes to implementing client portfolios. As a result, the investment world is prevalent with the use of ‘rules of thumb’ that seek to distil the complexities of finance into simplified concepts for the benefit of consumers and other non-professional investors. This is even more so when seeking to formulate investment strategies designed to address the challenges and complexities in an outcomes-based investing world, such as around formulating retirement income strategies.
This presentation will argue that employing such widely accepted simplifications can often result in satisfying one objective whilst ignoring others and introducing additional issues. There is a bias towards fulfilling the most visible objective at the expense of other less tangible, but equally important, objectives. Simplifications often adopted in the design of retirement income strategies may ultimately result in portfolios that don’t achieve what they have been designed to do.
The notion of ‘sustainability’ in relation to retirement income strategies revolves around creating solutions that by design give consideration to how investor’s objectives can be met through the cycle. This is particularly relevant for investors in the near-retirement or postretirement phase of the investment lifecycle where their objectives require a balance between longer-term considerations, such as inflation and longevity risks, and near-term considerations such as higher income and reduced volatility. Employing accepted ’rules of thumb’ can be detrimental to achieving these outcomes in a balanced fashion.
Designing and implementing retirement income strategies for clients is a challenging exercise. This added level of complexity is the result of seeking to identify a balanced approach to address multiple client objectives simultaneously and the fact that some of these objectives conflict with each other and have different time frames. Trade-offs are an inevitable reality. These trade-offs need to be understood by consumers.
The session provides an investment practitioner’s perspective on the asset side of the assetliability modelling equation, with a particular focus on changed role of allocations to growth asset, namely equities, in retirement income strategies. The long term suitability and sustainability of equity approaches when developing high yield/income and volatility focused investment strategies for clients will be discussed.
The Role of Data Science in Customer-Centric Insurance
Monday 17 August - 2:00pm - 3:00pm
The product development cycle has been broken by regulatory and competitive headwinds amidst increasingly demanding consumer expectations. The Royal Commission and the VEOHR inquiry into mental health showed that we can no longer rely on long-standing industry-wide assumptions. The growth of the insurtech ecosystem has accelerated innovation. Digital-first, finance-savvy consumers are expecting personal and individualised solutions.
For the actuarial profession, such challenges create an exciting opportunity to leverage machine learning and data science to redefine the traditional product development process through the lens of customer-centricity.
Utilising design thinking and leveraging structured, unstructured and Natural Language Processing techniques, this paper looks to showcase a journey combining external online insights with free text claims data and unstructured customer behaviour data to provide products that meet the expectations of emerging unfair contracts and discrimination legislation – and customer needs.
The paper provides a mix of thought leadership and technical case studies to challenge the existing mindset and ensure actuaries are empowered to contribute to the product development cycle in a 'Post-Hayne World'. The case studies focus on specific machine learning techniques with examples of Python code to allow actuaries to replicate the insights in other product lines.
Using Superannuation Fund Operational Risk Scenarios To Calculate an Internal Risk Based Capital Position
Thursday 6 August - 10:00am - 11:00am
Tim Gorst, Matthew Burgess, Taleb Hassan and Bloreen Abbasi
On request of the Superannuation Practice Committee (SPC), a small working group of actuaries (Tim Gorst, Vivian Dang, Matt Burgess, Taleb Hassan) have developed a presentation to explore the use of risk based scenario analysis in developing an internal risk-based capital position for Australian Super Funds. More specifically the working group has explored the following core question “Is there a pragmatic way that a set of operational risk scenarios can be both parameterised and then aggregated to infer an internal operational risk capital position for an Australian Super Fund?”.
By way of context, “tail” related loss data for Australian Super Funds are generally unavailable making a risk based capital model based on historical (more extreme) loss data very difficult to construct. As such the potential benefits to a Board (particularly in relation to non-financial risk management) in determining and regularly reviewing their own internal risk-based capital position requires an alternative method to ensure risk and internal capital remain linked. The alternative method suggested in this presentation is management sourced scenarios aggregated together into an internal capital position using relatively simple statistical techniques.
The presentation hopes to begin a discussion which could lead to a more developed paper outlining a relatively simple fit for purpose technique that could be deployed not just for super funds but for other industries wanting to determine a simple internal risk based capital position in a data scarce environment. The presentation will be split into three parts
1. Overview and high-level context,
2. Approach and challenges to using multiple scenarios to infer an internal capital position, and
3. A Worked Example
What Makes a Good Forecast? Lessons from Meteorology
Tuesday 18 August - 10:00am - 11:00am
Dimitri Semenovich, Chris Dolman
What makes a forecast “good”? How can we determine if an alternative is “better”? This is a common question asked in domains requiring regular predictions. In this paper we explore forecast verification concepts first developed in meteorology, such as Brier decomposition, and relate them to traditional actuarial forecasting tasks of pricing, reserving and capital modelling.
We use then use these observations to motivate a new metric - called resolution in Brier’s system - for monitoring the predictive power of pricing systems. This may sit alongside traditional monitoring concepts such-as the overall rate adequacy or expected portfolio profit, and may be computed simply from observed data, free from models and other external assumptions.
When the air becomes toxic: the health costs of bushfire smoke and poor air quality
Tuesday 11 August - 2:00pm - 3:00pm
Kirsten Armstrong, Ramona Meyricke, Michelle Dong
Air pollution is a major health risk and a persistent concern in Australian capital cities. Air pollution causes illness, premature death, reduced quality of life, lost productivity, and significant economic costs. In 2006, the NSW Government advised that air pollution caused 643 to 1,446 deaths annually in the Sydney region, and that a ‘conservative estimate’ of the health related financial costs of air pollution in NSW was $706 million to $5,994 million per annum. The 2019 – 2020 bushfire season was the worst on record, and caused abnormal levels of air pollution across Australia. 80% of Australia’s population was blanketed by bushfire smoke at various stages throughout the season. Sydney, Melbourne, and Canberra were all declared to have the worst air quality in the world at different points throughout the period. At least 400 deaths and 3000 hospitalisations can be attributed to the immediate effects of this smoke.
Whilst there are other factors contributing to air quality, natural sources including bushfires is a major contributor. Climate change will exacerbate air pollution in two main ways. First hotter temperatures due to climate change will result in worse air quality by increasing the number of days with high concentrations of ozone. Second climate change will increase bushfire risk; in the future, bushfires such as those over the ‘Black Summer’ of 2019-2020 are 80% more likely because of climate change.
Despite the large health and social costs of air pollution, it is often described as a “silent killer”. This is partly because the impacts of air pollution are not easily attributable or clearly quantifiable, particularly long-term impacts. Furthermore, many of the costs of poor air quality are ‘external’ to the production and consumption processes and fall on the wider community and society rather than the polluter, meaning that these costs are not priced and often ignored. Policy makers should consider all costs and benefits of air quality, including ‘external’ effects, such as air emissions.
The health risks and costs of air pollution need to be better understood by actuaries and policymakers, to better manage the health and economic risks of air pollution. This project aims to:
1. Quantify the relationship between ambient air quality and excess mortality and hospitalisations for respiratory and cardiovascular issues over the period 2013-2020.
2. Understand the communities and geographic areas most vulnerable to poor air quality
3. Holistically assess the health impacts and costs of poor air quality in Sydney
4. Present scenario analysis based on different concentrations of air pollutants (linked to bushfire severity) and the implications for excess mortality and hospitalisations.
This analysis is valuable in understanding additional health risks, forming adaptation solutions, and preventing severely adverse future health impacts, particularly for those individuals with higher sensitivity to air quality.
Algorithm Governance… Questions You Should Be Asking to Protect Customers
Tuesday 25 August - 10:00am - 11:00am
Marcello Negro, Ashish Ahluwalia
Algorithms rule the world, or at the very least, the impact that predictive modeling and automated decision making is having on our day to day lives is becoming much more prevalent - not least in insurance. Do insurance Executives and Directors adequately understand the extent to which these algorithms are in use today and are they sufficiently aware of the potential risks and impacts that front line algorithms have on their business?
Our paper aims to provide a practical guide that Executives and Directors can use to navigate the technical complexities posed by the rise of algorithms.in the insurance industry. The paper will summarise:
- where algorithms are used in the current insurance landscape;
- the real world impact that the output of these algorithms have on customers and other
- relevant stakeholders;
- the need for a governance framework for these algorithms; and
- who we believe is responsible for their governance in insurance organisations.
We will then categorise common algorithms and their applications as they are applied across the insurance value chain today (such as Claims, Underwriting and Pricing, Operations, Risk and Compliance) and discuss the unique risks and issues associated with these applications. From there we will provide specific and practical diagnostics, together with a quantitative and qualitative assessment framework that Executives and Directors can use to truly understand and actively manage the risks arising from the business’ use of algorithms.
This paper is targeted at Executives and Directors as we believe they are ultimately responsible for their companies’ actions. Actuaries are often involved in the design, development or oversight of these algorithms in insurance organisations. The intended learning outcome of our paper is that Actuaries assist their employers in implementing more rigorous governance of algorithms across the broader aspects of the insurance value chain.
All Your Data are Belong to Us – Trends in Data Ownership
Thursday 13 August - 4:30pm - 5:30pm
Hugh Miller, Chris Dolman
“Data is the new oil” – use of data is central to modern business success and it is no surprise that all four non-state companies to achieve trillion-dollar valuations are technology companies that rely heavily on data. But how can data be accessed? Who owns data? What control do you have over your data? What happens when people do not have enough data assets, like credit or banking history, to access services that increasingly require it? This paper will consider trends in data ownership and some of the implications of these trends.
First, it will look at the implications of the current Australian Privacy Principals. Although they give significant rights to individuals, the degree to which companies are able to comply and the legal interpretation of what constitutes personal data highlight ongoing challenges. Full compliance typically requires sophisticated data management systems and constant vigilance. We look at personal examples of data requests made under the APPs. We will also discuss practices companies are using to comply with privacy rules, including transforming personal data to detailed ‘non-personal’ data.
Second, we explore trends in data portability including recent open banking rules. The intended operation of the rules is to give people greater ability to access, use and redirect data about themselves that is currently held by institutions. This is predicted to enhance competition and innovation. However, when applied as a broader theme across many sectors, there could be significant side effects, particularly around product access for those who are digitally disadvantaged. Balancing the benefits with the side effects will be a significant challenge as these systems mature.
Finally, we discuss recent developments on the data regulation front and the implications for further developments that may significantly affect how companies collect and use data.
Deep Tech and the Future of Insurance
Thursday 27 August - 2:00pm - 3:00pm
With an increasing number of insurers and reinsurers focusing on technologies that deliver better experiences and add more value to their customers, using a strategic foresight approach, this talk will explore some of the latest ‘Deep Tech’ developments relevant to life, health and general insurers.
The talk will start with an introduction to the Deep Tech topic followed by an overview of several key Deep Tech trends, such as the latest advances in artificial intelligence, drones, robotics, materials science, space 2.0, ambient computing and cyber-physical systems.
The talk will conclude with an overview of important social and ethical issues relevant to the emerging Deep Tech trends.
Educating Actuaries in Data Analytics
Friday 28 August - 10:00am - 11:00am
Amanda Aitken, Michael Callan
Data analytics is a fast-growing area of almost unlimited potential for actuaries to play in. How can we ensure that actuaries have the necessary tools to successfully compete in this area?
This presentation will examine ways that actuarial associations in Australia and overseas are integrating modern data analytics and machine learning techniques into their education programs.
For example, from 2020, the Actuaries Institute launched a new subject, ‘Data Analytics Principles’, into the Actuary program. This subject is being taught by accredited universities. In 2021, the Institute will introduce the subject ‘Data Analytics Applications’ into the Fellowship program. This will be taught by in-house actuarial educators with the assistance of subject matter experts.
Join us to learn about these exciting new subjects and those being offered by actuarial associations around the world.
Health and wellbeing outcomes for NDIS participants
Monday 24 August - 2:00pm - 3:00pm
Whilst the provision of health services is the responsibility of the mainstream health system and not the NDIS, the NDIA nevertheless collects longitudinal information about health outcomes of NDIS participants from its outcomes framework questionnaires. The decision to collect this information recognises the close and often complex relationship between health and disability, with information on health contributing to a fuller picture of participants’ circumstances.
This presentation describes the types of health and wellbeing information collected in the outcomes framework questionnaires, for both participants and their families and carers. This includes basic information about self-rated health, difficulties accessing health services, frequency of visits to hospital, and having a regular doctor, as well as more in-depth information asked of a subset of participants about health screening, vaccinations, diet and exercise, mental health, and resilience.
Analysis of health outcomes at baseline (Scheme entry), as well as longitudinal analysis of the change in outcomes over time, will be presented. In general, people with disability often have poorer health outcomes than those without disability, and comparisons with population benchmarks will be provided to illustrate the extent of the difference.
The Rise and Impact of the Gig Economy
Friday 21 August - 10:00am - 11:00am
Becca Duane, David Gifford
The gig economy has increased rapidly in size and popularity over the past decade with companies such as Uber, Deliveroo and Airtasker becoming household names. According to a recent survey, 13% of working-age Australians have undertaken digital platform work, with 7% having done so in the last 12 months. However, little is known about the economic size or growth rate of the gig economy due to a lack of regular or standardised statistical collections on the subject.
Because it is relatively nascent, there is scope for research on the gig economy’s long-term effects on worker insurance coverage, access to credit, and retirement savings. In this presentation we show how data analytics can be used to fill this knowledge gap. Specifically, we use proprietary banking transaction data and public data to answer the following questions:
- What is the size of the gig economy, and how fast is it growing?
- How is the gig economy impacting existing industry sectors?
- What are the economic impacts of the gig economy on its workers?
Illustratively, we will provide a unique view of the gig economy from a macro and micro perspective. From the worker perspective, we will provide a granular understanding on their lifestyle and financial support through analysis of their spending in comparison to workers in other industries.
AASB17 for GI - Why let the accountants have all the fun?
Thursday 6 August - 2:00pm - 3:00pm
Kenneth Chua, Leanne Weng
Given the upcoming commencement of AASB 17 starting in 2022, it will represent the most significant change to Australian insurance accounting in 20 years. Like all changes, AASB 17 will bring challenges but also opportunities.
For many organisations, a key customer are the owners of the business, many of whom look to the outcomes of the financial statements to measure the value of their investments.
We seek to investigate the key changes that arise from the new standard, with a particular focus on changes that are still under consideration. We also seek to highlight how actuaries can contribute their significant expertise to the solution and seize the opportunity to influence the efficiency of financial reporting process within insurers.
Considerations in Understanding Climate Change Effects on Insurance Risk
Monday 10 August - 10:00am - 11:00am
Meteorological data clearly shows an increasing frequency of extreme weather of the type that generates physical damage to property. Examples include the Australian Actuaries Climate Index, the Actuaries Climate Index, and IAG’s report “Severe Weather in a Changing Climate”. However, studies of normalized loss data in Australia and the USA have not shown a corresponding trend.
The American Academy of Actuaries has just issued a report entitled “Actuaries Climate Risk Index” which shows some relationship between weather and losses, but with significant uncertainly. This session will consider what these and other studies are telling us about extreme weather and losses.
It will also consider several additional questions that affect the overall framework for considering what investments should be made in adaptation measures.
- How can adaptation, including better building codes and land use policies, affected loss trends?
- What is the relationship between costs of adaptation vs. the transition risk with regard to decarbonisation?
- What process can be used to inform decisions on strengthening building codes, and how can actuarial concepts help?
- What factors may need to be considered in developing a framework to understand how extreme weather is affecting economic activity?
Actuaries have skills that are very relevant to understanding these issues. This session will draw upon the presenter’s work on the climate and climate risk index projects and also his academic work on studies of long-term trends in extreme event losses in both Australia and North America.
GI Affordability – The Scale of the Problem and Potential Solutions
Wednesday 26 August - 3:15pm - 4:15pm
Alison Drill, Kate Lyons, Simone Collins, Mat Ayoub
Affordability of General Insurance is an important challenge for multiple stakeholders – consumers, insurers, regulators and governments. There have been numerous inquiries, including the current multiyear ACCC Northern Australia Insurance Inquiry, yet there is no clear consensus on either the magnitude of the problem or potential policy solutions. When overlaid with a changing climate which is altering the risks Australians face, the importance of measuring affordability and developing well thought out policies will increase.
If affordability becomes an issue for large numbers of Australians, problems could include under and non-insurance becoming more prevalent.
The Actuaries Institute General Insurance Affordability Working Group has been investigating these issues. In this session they will discuss methods of measuring insurance affordability to understand the scale of the problem and, informed by international and Australian experience, the range of mechanisms available to address insurance affordability concerns and the efficacy of each. The mechanisms include various types of reinsurance pools, mutuals, direct subsidies, claim equalisation reserves and mitigation investment.
Insuring Cyber Risk in 20/20
Tuesday 11 August - 10:00am - 11:00am
Susie Amos, Danielle Casamento
Australia is at the start of the journey towards understanding and insuring cyber risks. Businesses and the government are still trying to work out what the risks are, how big they could be, how to manage them and if insurance provides a valuable solution.
This presentation builds on the Actuaries Institute Cyber Working Group previously publications to provide an update of the cyber risks facing Australia and how insurers are responding. Our session this year will bring the perspective from cyber security experts as well as insurance professional.
The session will aim to answer the following questions:
- Where are we at in the maturity of cyber risk and cyber insurance in Australia?
- What are the key risks facing business how big are they?
- Can cyber security really assist with reducing risk?
- How might cyber security data be useful for insurers?
- Are the current insurance solutions and products feasible and sustainable?
Should I use this rating factor? Philosophical approach to an Old Question
Tuesday 4 August - 10:00am - 11:00am
Chris Dolman, Seth Lazar, Dimitri Semenovich, Tiberio Caetano
A common question asked of insurance professionals is whether a rating factor ought to be permitted for price setting. One then often falls back on a set of heuristics, for example, is the factor commonly used in the market, does it predict well, would people generally expect it to be used, or is it visible to customers. However, the underlying principles of such intuitions are not necessarily appreciated or understood.
In this paper, we draw on contemporary ideas in procedural and distributive justice to decompose the classical notion of risk into several components that in turn allow development of semiformal criteria by which rating factors may be evaluated. We hope that this new set of conceptual tools will allow practitioners to reason about ethical questions surrounding pricing systems with greater clarity.
HPC PHI Industry Update
Tuesday 25 August - 2:00pm - 3:00pm
Ignatius Li and Nicholas Stolk
Private Health Insurance is currently facing a number of headwinds, so called “death spiral”, affordability issues, value proposition of PHI, and actuaries are playing a key role in navigating through the turbulence. The purpose of this session is for HPC to provide an update on its pipeline of activity to position the actuarial profession to help the industry respond.
HPC will firstly reflect on the recent twelve months including a check on the impact of the most recent reforms, including the product categorisation and mental health safety net changes. We will explore what has worked well, what has not worked as well, and what are the next logical things to potentially consider. We will also update on current issues including changes to capital standards and provide an update on the position put forward to APRA. We will then share the pipeline of thought leadership and lead a discussion to confirm or explore whether the priorities identified are broadly aligned with where we think best that the actuarial profession can and should be playing a role.
This is intended to be an interactive session as much as a providing an update by HPC. We look forward to engagement from the broader actuarial profession.
Mental Health: Next Move?
Tuesday 18 August - 3:15pm - 4:15pm
Andrew Matthews, Sue Freeman, Angela Poon
Objective: To enhance understanding of Mental Health through: Exploring recent work, looking for pathways and supporting collective for moving forward.
Motivation: So we support communities we work in to tackle this important issue
- Where have we been? A re-cap of progress since the Actuaries Institute Green Paper and current cross roads for us in Mental Health
- What is Consumer Reality? General and Life: Recent work on Product Disclosure and the question of statistically justified underwriting (or not).
- What options is PHI exploring? Recent changes to products including the experience of the waiver of waiting periods (APRA data) if available
Potential Challenges in this Area: The issues relating to Mental Health are not going away and will likely increase before improving
What’s success look like?
We’ve increased the understanding and informed opinion providing a base for establishing a way forward.
PHI - Scenarios Planning and Affordability
“Hope for the Best, Plan for the Worst!”
Tuesday 4 August - 2:00pm - 3:00pm
Andrew Matthews, Karl Niemann
Objective: The purpose of this paper is to embrace scenario planning for resilience and to enhance capital management in “Private Health Insurance”.
Motivation: So we create an environment where good alternatives spark lively debate, illuminate important nuances and generate commitment. There is rarely one “right” answer.
- Scenario Planning – What does good look like? We examine the characteristics of good scenario processes and good scenarios. We then explore this in the context of Private Health Insurance.
- Affordability Scenario – Why prepare for critical uncertainties around affordability? We explore the affordability factors that may threaten the ability of PHI to operate successfully. This can then test the viability of current strategies by exposing assumptions and uncertainties. Numbers help add a scaling and quantum to surface what’s important in each scenario.
- Capital Stress – How to allow for adverse events? Here we explore the proposed capital standard changes with a focus on the implications of prescribed adverse events.
Potential Challenges: A focus on debating the likelihood of a scenario rather than exploring multiple views. There is always more than one scenario of the future. A single view is a forecast.
Conclusion: What’s success look like?
The regulator’s prescribed adverse stresses are well understood.
More importantly, that scenario analysis generates the ability to ask questions on:
- Awareness: What issues, trends and implications catch your attention? (better able to see different futures unfolding)
- Development: What are the implications of the scenarios presented and what capabilities are required? (better prepared to act)
- Implementation: What strategic decisions or initiatives could we take today that would improve the chances of a preferred scenario occurring? (more ready to absorb disruptions resiliently)
APRA Review of LPS 117 Capital Adequacy: Asset Concentration Risk Charge (ACRC)
Monday 10 August - 4:30 - 5:30pm
Colette Reid and Yan Sun
LPS 117 prescribes the method for calculating the Asset Concentration Risk Charge (ACRC) component of the Prescribed Capital Amount (PCA) for a life company.
In December 2017, APRA issued a letter to all life insurers signalling a review of LPS 117 and suspending discretionary approvals to allow entities to mitigate exposures to non-registered reinsurers for the purpose of calculating the ACRC. The review was to include an assessment of the future use of collateral trust arrangements, including whether they should be permitted for the purposes of LPS 117. An information gathering exercise was undertaken by APRA in early 2018.
In March 2019, APRA issued a further letter inviting input to its review of LPS 117, including a review of asset concentration limits relevant to exposures arising from reinsurance arrangements (with particular consideration of off-shore reinsurers and related party exposures) and the definition and treatment of risk mitigants.
An Institute working group prepared a submission on behalf of the industry to APRA, considering the proposed changes to exposure limits, and providing feedback on the proposed changes to the definition and treatment of risk mitigants. This was in addition to the submissions understood to have been made by individual insurers and reinsurers.
APRA signalled that a new draft LPS 117 would be available for consideration and responses in the first half of 2020.
This presentation will:
- Provide a short summary of the proposed changes in the March 2019 APRA letter
- Provide a summary of the Institute response
- Provide a summary of the changes proposed in the new LPS 117 (if available)
- Consider the implications of the changes for life insurers, locally licensed reinsurers and off-shore reinsurers, with particular consideration of the definition and recognition of risk mitigants including the use collateral trusts and other instruments as Eligible Collateral to mitigate an ACRC.
Changing Disability Income: beyond the headline
Friday 21 August - 2:00pm - 3:00pm
It's no secret that with the industry's ongoing losses, the current DI product needs a major rethink to become more sustainable. Actuaries play an integral part in redesigning and pricing these new DI products. Many of the features and benefits of DI seem straightforward on the surface level. However, when diving into some of the key features the picture becomes less clear. Join Swiss Re's specialist panel to learn:
- What actually contributes to a replacement ratio
- How the number of hours worked at Underwriting relate to partial claims
- What the shortfall is with our disability definitions and how these can be improved
This session takes a holistic view and goes into depth how these features are handled during both the underwriting risk assessment process as well as during claims management.
Our UW and Claims specialists at the coal face will explain what works, what doesn’t, what would be downright problematic.
Embedded Value - Arcane Actuarial Hieroglythics or Resurrected under IFRS17
Tuesday 4 August - 3:15pm - 4:15pm
Embedded value as a measure of distributable profit had gained popularity as a reporting metric in the early 2000s across Europe, with many variations ranging from Traditional EV to European EV to Market Consistent EV. The European CFO forum issued EEV principles in 2004, and MCEV principles in 2008. Many insurers around the world, including Europe, north America, Asia and Australia use EV as an external as well as internal reporting metric. However, with the introduction of Solvency II, many insurers have stopped reporting MCEV as Solvency II is very similar and could be used as a replacement of EV. After the release of IFRS17 in May 2017, many insurers are questioning the value of embedded value reporting as it is also a similar measure, and globally adopted.
This presentation aims to discuss how adoption of IFRS17 will impact the future of EV reporting, in particular with respect to differences and similarities of IFRS17 and EV as a measure, and the future of embedded value reporting in Australia and it’s neighbour Asia.
IFRS 17 Implementation Challenges and Lessons – Life Insurance
Thursday 6 August - 12:00pm - 1:00pm
Richard Lyon, Jeroen Van Koert, Mike Williamson
This session will discuss the challenges and lessons learned from IFRS 17 implementations for the Australian Life Insurance market. We encourage active participation from the floor. The discussion will include:
- Contract boundary –allowance for new business and cohorts.
- Capital / APRA considerations.
- Ways of reducing IFRS 17 complexity.
Improving the customer experience across the entire journey
Wednesday 5 August - 2:00pm - 3:00pm
Customers should be at the centre of everything we do but are we really designing an insurance experience with customers in mind? This session will look at what we can do to better understand the customer journey and some of the pain points we put our customers through. In a day and age where time is critical and technology can and should be used as an enabler, it is simply not good enough to continue to have cumbersome application or claims processes and confusing products.
Additionally, with the current spotlight on financial services, the concept of policyholder or community expectations has been reinforced. Are we confident in saying we are delivering to community expectations and what is an Actuary’s role in this?
This presentation will look briefly at some of the innovations happening across the life insurance industry to improve the customer journey. From better application processes using behavioural economics, to engaging differently throughout a customer’s lifetime supporting their health and well-being, to the ultimate proof point – the claims experience. We will consider the role of the Actuary in developing an improved journey and what this can ultimately mean for pricing our products and managing experience.
Is Retail Lump Sum business sustainable?
Tuesday 11 August - 4:30pm - 5:30pm
Product Sustainability Working Group
The problems and lack of sustainability of individual disability insurance are well known - but are they are only problems in the retail insurance market?
To answer this question Product Sustainability Working Group was formed and they presented their draft report to the Life Sub-Committee of the Actuaries Institute in October 2019. The finalised report was made available to members in June.
The presentation will highlight the key ideas from the paper:
- Problems that exist today with the current retail lump sum offerings (with parallels to issues raised as part of APRA’s IDII thematic review).
- Solutions to these problems (generally within the current regulatory framework).
- Potential longer term consequences for the industry of adopting some of these solutions.
Keeping a Level Head
Monday 24 August - 4:30pm - 5:30pm
In recent years, the market has increasingly moved from stepped premium to level premiums. This trend is expected to continue. However, care should be taken as pricing level premium business has it’s own difficulties which should be allowed for. Simply applying stepped pricing to a level premium structure can easily lead you to be mispricing your business.
This presentation discusses some of the key issues you should allow for such as
- Differences in expected experience between level and stepped
- The impact of switching to stepped after the level period.
- Treatment of indexation increases
- Impact of premium reviews
The presentation will share experience from other markets and indicate the impact on price of differences in assumptions. This will be an opportunity to raise and discuss some of the issues and welcomes a collaborative discussion.
Looking Forward with a Customer Lens - Reinventing Disability Insurance to Provide Sustainable Solutions for Customers and the Community
Thursday 20 August - 2:00pm - 3:00pm
Marc Mer, Raymond Bennett, Matt Ralph, Donna Hill and Alan Merten
The intervention from APRA in December 2019 and into 2020 to drive changes to individual disability income insurance (IDII) products has helped to drive the opportunity for the insurance industry to reinvent disability insurance for its customers. APRA has flagged that it has concerns with other products not just IDII. A more holistic view must be taken to the development of a new product design to address the underlying issues and to ensure that protection can be provided to consumers in the future and in a sustainable manner.
In the short term, insurers need to perform rapid product development and re-pricing to remove agreed benefits from product ranges and anticipate APRA’s final guidance on disability income products (planned for June 2020 with implementation in July 2021). In making these changes, insurers will be required to quickly respond to associated changes in consumer and adviser behaviour.
This presentation, jointly presented by Deloitte and Montoux, will discuss:
1. The future of disability insurance, exploring what it may look like in future based on insights collected from the industry through the Shifting Gears workshops run by Deloitte and Montoux.
2. The potential for a transformational disability insurance product, and how to approach this using Human Centred Design to collaboratively meet customer needs and address incoming product change requirements.
3. The application of immediate product and process changes needed. This includes executing system changes, consideration of strategies and tools to support rapid re-pricing and test price elasticity and lapse/retention modelling, and analysis of the impact of bundling of products.
Market Responsive Reinsurance
Thursday 20 August - 4:30pm - 5:30pm
Traditional life reinsurance products in the Australian life market have struggled in recent times, most notably financially, but also in alignment to the needs of the insurer and the end customer. An insurer’s key risks have materially evolved over the past decade, and yet we are still adopting the same reinsurance strategies to manage these risks.
This presentation will explore:
- How an Insurer’s risks are evolving
- How well do current reinsurance models meet these risks?
- Ideas around how an insurer’s reinsurance program might evolve to better enable managing the current environmental head winds and support the business growth opportunities of the 2020’s
Time Lapse: A Picture of Insurance Retention and an Uncertain Future
Friday 7 August -10:00am - 11:00am
It has been a turbulent few years in the insurance industry, with major changes in regulatory environment, M&A activity, and widespread media scrutiny. With the upcoming changes to DI product and uncertainty of the future of advisor commissions, the future market outlook doesn’t look much rosier.
In our presentation, we want to focus on how the major changes in the industry has affected customer retention, and what we can expect looking forward. We will consider how this affects the under insurance problem in Australia, how challenges and opportunities faced with removing agreed value policies and the new DI product, and whether there are any learnings from overseas that can help manage customer retention.
We will take the full customer journey into consideration, including the changing landscape for advisors, the impact of initial discount pricing, and the impact of technology on customer retention. After allowing the impact of the major changes and what we believe will happen in the future, we will propose potential solutions to help improve member retention.
This presentation will:
- Provide a summary of the recent changes in Retail lapses, including regulation and acquisitions.
- Provide a summary of the upcoming changes that will further affect lapse rates.
- Consider the implications of the changes for life insurers, including solutions to help improve customer retention.
Risk margins – Are they really capturing the risk?
Thursday 27 August - 4:30pm - 5:30pm
Gerard Callaghan, Meera Sardana
With companies increasingly facing uncertainty around every corner, are actuaries deriving and using risk margins in an appropriate way when providing advice on capital and target surplus requirements?
Every two years the LIWMPC’s Risk Margin Taskforce surveys Australian Life Insurers about the way risk margins are determined and used (in the calculation of prudential capital requirements) and the practices used in setting Target Surplus. The results of the 2020 instalment of the survey will be presented on an anonymous basis, highlighting the key considerations when setting risk margins and Target Surplus, the range of risk margins adopted across the industry and key changes since the previous survey.
Integrating ESG-Related Risks into ERM - A Risk Network Enhanced Analysis of Systemic Risks in the Food and Agriculture Sector
Wednesday 19 August - 5:00pm - 6:00pm
Timothy Lam, Mike Ashley, Hoa Bui
In a world where economic and political volatility is becoming the norm, and the past is no longer a reliable indicator of things to come, seemingly disparate risks can become inextricably linked. The bushfires across Australia this summer served as a reminder that Environmental, Social and Governance (ESG) related risks are real and pose key risks to our businesses and communities. While the significant impact is generally recognised, ESG-related risks can be difficult to identify, quantify and prioritise and the need to quantitatively investigate their contagion to other business risks is necessary.
In this session, the presenters discuss how the World Business Council for Sustainable Development and KPMG collaborated to assist the food and agricultural sector to understand the potential magnitude of ESG-related risks given the increasingly resource-scarce limits of the planet. Through the application of KPMG’s Dynamic Risk Assessment – a methodology that uses the science of expert elicitation, network theory and actuarial methods to identify and quantify risks across 4 dimensions – unique insights and findings were identified with key themes and suggested actions recommended to the industry as potential areas of focus.
The adopted approach is detailed in the Summit Paper with the same title as this concurrent session. The product of this engagement, titled “An enhanced assessment of risks impacting the food and agriculture sector” and released at the World Economic Forum at Davos this year, can also be accessed alongside the Summit Paper.
Growth in Super - what does it mean for investments and retirement products?
Wednesday 12 August - 10:00am - 11:00am
Dianne Somerville, Alan Merten
Despite ongoing volatility in investment markets, in the context of historically low inflation and cash rates, the Australian superannuation industry continues to grow strongly. There is a long-term trend of growth in superannuation assets relative to GDP, and this growth is expected to continue over the next 20 years (although at a projected lower rate than we have seen more recently).
This presentation will explore two matters at the heart of the growth in superannuation fund assets into the future:
(i) Investment opportunities
Superannuation’s increased share of total financial system assets has led to superannuation funds facing higher expectations for their investment activities, which has led in turn to a greater scrutiny of comparative returns, and peer relative performance metrics. This presentation will explore the implications for funds in how they manage their investment management activities for the best interests of their members into the future.
(ii) Evolution in retirement products
Deloitte conducted a survey of major superannuation funds to identify where the industry is currently placed in relation to the development of strategies and products for CIPRs. We will present some of the highlights from those survey results and discuss the perceived benefits and challenges of CIPRs and retirement product innovation as seen by the funds.
How member outcomes will transform the superannuation industry
Tuesday 11 August - 3:15pm - 4:15pm
Member Outcomes reform is game changing reform that will see the superannuation industry simplify and consolidate. This session will explain what the reform is, what changes the reform will drive, how superannuation funds are responding both now in the future.
How optimal are typical decumulation-phase strategies?
Thursday 13 August - 10:00am - 11:00am
Adam Butt and Gaurav Khemka
In Australia and much of the world, a vast difference can be observed between the academic literature on decisions relating to retirement provision, and the products available to and decisions made by individuals in planning for retirement. This is reflective of the fact that individuals are illequipped to make the complex financial decisions required of them in managing their retirement finances (Agnew, Bateman et al. (2013); Lusardi and Mitchell (2014)). Furthermore, it indicates the necessity for products to efficiently trade off the complexity of the outcomes modelled in the academic literature, with the desire for simplicity considered necessary by customers and sales agents.
A recent paper by Khemka, Steffensen et al. (2019) investigates optimal investment strategies preretirement and compares them with available products that adjust investment strategies in a deterministic way with age. Assuming risk aversion is known, the paper finds that simple reductions in risky asset allocation with age, as is consistent with many MySuper products offered in Australia, do a good job of replicating dynamic strategies from complex academic models that adjust asset allocation with age and investment performance.
This paper considers a similar issue as that described by Khemka, Steffensen et al. (2019), but from a post-retirement rather than pre-retirement perspective. This increases the complexity of the problem as retirement requires not only addressing the investment strategy but also the drawdown strategy, which both occur in the context of uncertain mortality. Our method involves applying lifecycle modelling following the seminal work of Samuelson (1969), comparing the theoretically ‘optimal’ strategy with that either embedded in current retirement products and various proposed simple rules. Our aim is to establish the loss from applying straightforward strategies, and hence what simple product designs might make suitable candidates to offer in practice. The Australian age-pension is incorporated into the modelling in order to ensure that decisions and product design reflect this vital component of the Australian retirement income system. The work builds on the research of De Ravin, Liu et al. (2019), who used a utility framework to compare a range of drawdown scenarios in an Australian context, but assumed a single diversified investment strategy and did not benchmark against optimal solutions from the lifecycle model.
Is Self-Funding Retirement Efficient?
Friday 14 August - 10:00am - 11:00am
Nathan Bonarius, Cecilia Li
The Retirement Income Review is currently undertaking its analysis of the retirement incomes system. This includes consideration of the objective of the system, roles of the pillars and adequacy.
Ultimately, every dollar of retirement income comes from the contributions of the Australian population, whether self-funded or through the payment of taxes.
Many commentators discuss whether the SG should go up, whether the means test is fair, whether the Age Pension should be universal. Without an objective of super it is difficult to determine which policy settings are optimal. The current policy statement (not passed by parliament) to “substitute or supplement the Age Pension” leaves plenty of room for interpretation and could be used to support a universal Age Pension or a heavily means tested poverty alleviation measure.
This paper attempts to contribute to the fact base on this issue, through examining the circumstances under which it is preferable to pre-fund retirement incomes via superannuation versus an Age Pension. The paper will discuss the necessary conditions in terms of population structure, rates of real return and intergenerational equity issues that determine the relative efficiency of self -funding retirement.
Introducing a long-term risk metric for superannuation
Tuesday 4 August - 4:30pm - 5:30pm
Ian Fryer, Estelle Liu, David Carruthers, Young Tan and Rein Van Rooyen
It is important for superannuation members to understand the risk of a particular investment option or portfolio they are investing in. As a result, in addition to disclosing the investment performance, it is also important to disclose the risk of such investment.
The main risk metric currently disclosed to members is the Standard Risk Measure (SRM) which only focuses on losing money in any year. Given superannuation is a long-term investment, a critical risk is that the actual retirement outcomes achieved fall short of expectations. To address this risk, we are proposing the introduction of a Long-Term Risk Metric (LTRM) that could potentially be used alongside the SRM. It would show the risk of not meeting a certain long-term performance objective which reflects the risk of a member not efficiently meeting their retirement income goals.
Discussions with Treasury, APRA, ASIC and industry representatives have continued to show that there is support for the development of such long-term risk metric. Since the issue of our first discussion paper in 2017 through the Actuaries Institute, the working group has been progressing with further development that incorporates views from industry representatives and implications from recent regulatory changes.
This presentation will provide an overview of the LTRM developed to date and outline some key issues that are critical for consideration. The aim of the working group is to develop a LTRM that can be widely accepted by the industry and used as one of the core metrics for consumer disclosure purpose.
Mini Plenary: Retirement Income Review
Wednesday 5 August - 12:00pm - 1:00pm
Andrew Boal, Robbie Campo, David Knox
After 27 years of compulsory superannuation the retirement incomes review will provide an assessment of the current state of the system and how it is likely to perform in the future. In this session hear from our three distinguished speakers who have contributed greatly to the retirement incomes policy debate over their careers. To get their thoughts on the direction of the review, policy implications and the impact for members.
Risk Management of Defined Benefit Funds in Australia
Tuesday 18 August - 4:30pm - 5:30pm
With a lowering interest rate environment and maturing member base for most DB plans, this paper explores the current theme of DB fund trustees reviewing their management of defined benefit liabilities in response to these factors. The paper draws on empirical evidence on some systematic risks faced by DB funds in Australia, such as longevity risk, as well as some fund specific risks.
The paper proposes a range of options to manage the underlying risks, in addition to the current practices governed by the regulator.
- to apply a de-risking glide path to change the investment policy towards a more liability driven investment strategy.
- to transfer risks to third-party (e.g. insurer) via a buy out, buy in or SFT (Successor Fund Transfer) arrangement, where a market valuation of pension liabilities will need to be considered.
- to determine an ongoing funding rate, over a planned period of time, to fund the future gap when pension liabilities need to be assessed at a market consistent value.
The paper also investigates similar and different practices in the UK and US market, endeavouring to draw implications to employer sponsors and trustees of how to manage the funding positions of their DB liabilities here in Australia.
Tontines: Sharing is Caring
Wednesday 26 August - 10:00am - 11:00am
Vivian Dang and Young Tan
While tontines are rarely seen (or sold) in the current environment, there has been an increasing amount of innovative research in the last decade which is leading to a rebirth of modern tontine-thinking. Misconceptions however persist.
In this paper, we are bringing together the historical context and modern tontine-thinking by providing a review of historical tontines and recent academic/practitioner research. We then distil the key elements of tontine thinking, before highlighting and discussing product design features and characteristics that could be suitable for the Australian superannuation market, which is principally of defined contribution nature during the accumulation phase and dominated by account-based pension products in the retirement phase. For example, features could include tontines with member investment choice or flat drawdown rates (subject to mortality volatility).
The paper will conclude by taking a deep dive into one particular design with modelling results and discussion on implications for superannuation members and service providers.
Will CIPRs drive fair retirement outcomes?
Tuesday 25 August - 4:30pm - 5:30pm
As Australia moves closer to legislating the retirement income covenant, what can we learn from the global market, particularly the established UK retirement market to ensure CIPRs drive fair retirement outcomes? The rise of enhanced or “underwritten” annuities in the UK is an important lesson for Australia in developing our own retirement income market and addresses the important question of whether one size fits all.
- A better understanding of our changing population demographics and the need for retirement insurance products.
- What can we learn from the experience of established UK market that we can apply to our local environment.
- Learn how underwritten annuities will challenge underwriting philosophy.
Wealth and Investment
Analysing current market option pricing against pre COVID-19 prices through the lenses of an analytic expression for the variance of the BSM Formula
Friday 21 August - 4:30pm - 5:30pm
David Lau, Henry Lau and Geoff Harris
The well-known Black Scholes and Merton (BSM) formula is the solution to a stochastic partial differential equation and was published in 1972. The BSM formula gives an analytic value for the price of European Call or Put options. Since then, Cox Ross and Rubinstein in 1979 developed the widely used n-step Binomial Option Pricing Model (BOPM) as a discrete event system for pricing any call or put option. In the limit of n, their result reproduces the same result as the BSM.
To date nobody has an analytic expression for the variance associated the mean of the option prices produced by either of the models above. The variance, of any quantity, is of significant importance in Finance and Actuarial Science as it quantifies the risk associated with that estimate of the mean. In this work we derive an analytic expression for the variance of the call and put option by use of the Cox Ross and Rubinstein approach.
Our analytic expression is verified by computer simulations for a wide range of the parameter phase space. Particular note is made of the trade-off between the number of simulations run and the fineness of the steps in the BOPM. Application to some series listed on the ASX are presented to demonstrate the variance in the observed option price. This has not been able to be achieved previously except by computationally expensive Monte Carlo modelling.
Finally, we demonstrate an advanced application of the variance to the pricing of a capital guaranteed.
Asset Liability Management Across Multiple Goals in Personal Financial Planning
Friday 14 August - 3:15pm - 4:15pm
Jack Ding, Craig McCulloch
Personal financial planning have progressed from promoting products to considering the needs and wants of individuals. This has been accelerated by an increase in fiduciary requirements and professional responsibilities placed on advisers.
Financial Advisers need to consider the best interests of the client when providing advice according to the goals and objectives of the client. However they face a complex challenge to balance the achievability and risk across multiple goals with varied timing and priorities, which is further complicated by the uncertainty of longevity, investment returns, future cash flows, and the complexity of Australia’s superannuation and pension system.
This paper investigate an approach to tackle this challenge using stochastic asset liability management (ALM) techniques commonly used by life and general insurance actuaries. Here we consider multiple consumer objectives as being similar to life insurance liabilities, and derive a dynamic asset allocation strategy to better manage the probability of meeting these liabilities in a personal financial planning context.
In the session we will discuss the financial planning problems to be solved, using examples to demonstrate the application and potential value of using the ALM process to develop goals based financial advice strategies, and ways to engage and communicate that advice to consumers.
Demand for Reverse Mortgages: The Role of Mental Accounting and Choice Bracketing
Wednesday 5 August - 4:30pm - 5:30pm
Hazel Bateman, Joshua Funder, Katja Hanewald and Tin Long Ho
Australian households hold a large part of their wealth in the form of housing. Reverse mortgage products are designed to help households with accessing their housing wealth for a better living standard in retirement without selling and moving out. Hence, economic theory suggests that these products should be popular. However, the demand for reverse mortgages remains very low in Australia and internationally. While previous studies have focused rational factors in explaining this ‘reverse mortgage puzzle’ (e.g., bequest motives, debt aversion, financial illiteracy), we conduct an experimental survey to analyse how behavioural factors, in particular, mental accounting and framing via narrow bracketing influence the demand for reverse mortgage products. We identify strategies for how to overcome these behavioural barriers. Our results will help consumers to understand the products better and assist the financial services industry in designing, promoting, and selling reverse mortgage products.
How Will We Know if we are Achieving Good Customer Outcomes?
Wednesday 19 August - 10:00am - 11:00am
Aidan Nguyen, Rein Van Rooyen, David Millar, Vivian Yu, David Carruthers
By their very nature, Actuaries have always needed to be adept at stepping through the risk and return trade off. More, now than ever before, we are being asked to step up. This time, into the shoes of the customer. Seeing things through the customer lens seems straightforward at first glance. But the real challenge for us is when we are required to provide insight in the form of measurable and fit for purpose metrics reflective of the actual objective(s). This session from the Customer Outcomes Working Group (COWG) provides a taste on what these metrics could look like in the context of recent developments within the Wealth Management industry.